Estate Issues & Wealth Transfer

Question 1

What is a disclaimer?

Answer 1

If the intended beneficiary does not accept a post-mortem gift, the gift is considered to be “disclaimed” and is treated as if the intended donee has predeceased the decedent.

Question 2

What are some common errors in estate planning?

Answer 2

1. Not having a will or having a homemade will.
2. Titling too much property in joint tenancy.
3. Leaving everything to one’s spouse.
4. Failing to plan for adequate estate liquidity.
5. Having insufficient life insurance.
6. Failure to make lifetime gifts.
7. Failing to take steps to keep life insurance proceeds out of the estate.

Question 3

What are the elements of a valid disclaimer?

Answer 3

1. must be in writing
2. within nine months from the date the property was transferred. (In the case of a disclaimant aged under 21, the disclaimer must be written less than nine months after the disclaimant reaches 21.)
3. cannot accept the interest or any of its benefits.
4. As a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes either to the spouse of the decedent, or to a person other than the person making the disclaimer.

Question 4

What is the estate tax credit in 2022?

Answer 4

4.7 million

Question 5

What is the top estate tax marginal rate?

Answer 5

40%

Question 6

What is form 709?

Answer 6

Gift Tax Return

Question 7

What is form 709?

Answer 7

Gift Tax Return

Question 8

On what section of Form 709 is tax calculated?

Answer 8

Part II
Schedule A: Computation of Taxable Gifts
Schedule B: Gifts from Prior Periods
Schedule C: Deceased Spousal Unused Exclusion (DSUE)
Schedule D: Computation of Generation-Skipping Transfer Tax

Question 9

What is reported on the 709?

Answer 9

1. Future interests of any amount given to a nonspouse
2. Present interest gifts in excess of the annual exclusion
3. Transfers to a non-U.S. citizen spouse if the gift exceeds $159,000 (2021), and $164,000 (2022)
4. Transfers of qualified terminable interest property (QTIP) to a spouse in any amount
5. Split gifts with a spouse made jointly to a third party
6. If spouses in a community property state make a gift of community property to a third person, the gift is considered made one-half by each spouse, and each must file a gift tax return
7. Transfers to charity if any part of the transfer was of a future interest

Question 10

When Form 709 Is Filed?

Answer 10

Form 709 is due to be filed not later than April 15 of the year following the calendar year in which the gifts were made

If the donor dies during the calendar year in which a gift is made, the gift tax return must be filed no later than the earlier of the due date (including extensions) for filing the donor’s estate tax return, or April 15 of the year following the calendar year in which the gifts were made

Question 11

When is the alternate valuation date?

Answer 11

6 months after the date of death.

Question 12

When is Section 6166 available?

Answer 12

1. the decedent was a U.S. citizen or resident at the time of death
2. the value of the decedent’s interest in a closely held business exceeds 35% of the value of the decedent’s adjusted gross estate

Question 13

What is the 6166 election?

Answer 13

electing to defer completely for five years payment of estate taxes attributable to the closely held business interest and thereafter pay the deferred portion of the estate taxes in up to 10 annual installments

Question 14

What is a business interest for purposes of the 6166 election?

Answer 14

1. interest as a sole proprietor.
2. Partnership interest if 20% or more of the total capital interest is included or the partnership had 45 or fewer partners.
3. Stock in a corporation if 20% or more of the voting stock is included or the corporation had 45 or fewer shareholders.

Question 15

What is form 706?

Answer 15

Estate tax return

Question 16

What is new on form 706?

Answer 16

Portability of Deceased Spousal Unused ExclusionFiling the return is presumed to be a portability election

Question 17

Which tax is Tax Inclusive?

Answer 17

Estate tax, because the “estate tax paid” is/was included in the taxable estate.

Question 18

Which tax is Tax-Exclusive?

Answer 18

Gift tax because the “gift tax paid” is not included in the taxable estate, and therefore will not be taxed when the final estate is settled.

Question 19

What is the basis on property that the donor paid gift tax on?

Answer 19

the basis is adjusted and increased for the proportional percentage of gift-tax paid based on one’s proportional gain in the property.

Question 20

What is an Indirect Skip (taxable distribution)?

Answer 20

a distribution is made to a skip person through an entity like a trust (not otherwise subject to gift or estate tax); beneficiary (transferee) is responsible for paying the GSTT.

Question 21

What is an Indirect Skip (taxable termination)?

Answer 21

A distribution made to a skip person though an entity like a trust where a non-skip person is the primary beneficiary; example: parent established a trust for child with grandchildren named secondary beneficiaries, child passes away and distributions are now made to grandchildren; the trustee is responsible for paying the GSTT.

Question 22

Is GST portable?

Answer 22

No

Question 23

Is GST Tax a flat rate?

Answer 23

Yes, 40%

Question 24

What is IRD?

Answer 24

amounts of “gross income” of which a decedent was entitled but was not included in his taxable income in the year of death.

Question 25

Does the recipient of IRD get a step-up in basis?

Answer 25

No

Question 26

What is the basic tax treatment of benefits payable on death from tax-qualified retirement plans?

Answer 26

(1) estate tax as a part of the deceased participant’s gross estate and (2) income tax to the recipient/beneficiary.
* the recipient’s ability to deduct against income the portion of the estate tax attributable to the income item.

Question 27

What are Section 2503(c) Trusts

Answer 27

In order to be a valid 2503(c) Trust, the trust must:

1. have only one beneficiary;
2. make income and principal available to the trustee for the benefit of the child during the term of the trust; and
3. if the child dies before age 21, distribute the assets to his or her estate.

May be taxed as a grantor trust or complex trust.

Question 28

What are 2503(b) Trusts

Answer 28

Qualifying Minor’s Trust or Mandatory Income Trust. This is an irrevocable trust which requires distribution of income on an annual basis.

Question 29

What is a defective trust?

Answer 29

An irrevocable trust that intentionally violates one of the grantor trust rules so that trust income is taxed to the grantor.
It has these characteristics:
1. Transfers of property to the trust are completed gifts for federal gift tax purposes;
2. Trust assets will not be included in the taxable estate of the grantor or grantors;
3. The income of the trust is taxed to the grantor, who is treated as the “owner” of the trust for federal income tax
purposes.

Question 30

What are the advantages of a QPRT?

Answer 30

Donor retains the right to live in the residence.
Donor may lease the residence at the end of the trust term.
Residence (plus appreciation) passes to children at a fraction of its value.
Residence can be sold during the trust term

Question 31

To qualify as a qualified domestic trust (QDOT), the trust must first have the characteristics of a trust that would qualify for a marital deduction if the surviving spouse were a United States citizen. Thus, it must be a:

Answer 31

I. QTIP trust

2. Power of Appointment Trust
3. Estate Trust
4. CRT with the spouse as the only income bene.

Question 32

What requirements must be met to take advantage of the election to defer estate taxes?

Answer 32

The estate must satisfy requirements concerning (1) percentage ownership; (2) closely held business status; and (3) the timing of the election.
Closely held business must be:
1. A sole proprietor;
2. A partner in a partnership that has either 45 partners or less or the decedent owns at least 20 percent of the capital interest in the partnership; or
3. A stockholder in a corporation that has either 45 stockholders or less or the decedent owns at least 20 percent of the stock of corporation.

Question 33

The marital deduction will be denied for transfers of property passing to a surviving spouse who is not a citizen of the United States unless:

Answer 33

The surviving spouse was at all times subsequent to his or her spouse’s death a permanent resident of the United States, and before the filing of deceased spouse’s federal estate tax return, including extensions, the surviving spouse becomes a citizen of the United States; or

The property passes to the surviving spouse in a QDOT

Question 34

True or false: a powerholder can appoint the assets to a new trust with new dispositive provisions such as the ability to remove existing beneficiaries and add new ones, or change the terms under which income and principal may be distributed to one or more beneficiaries

Answer 34

true

Question 35

Can a powers of appointment be used to move trusts from one taxing jurisdiction to another in order to change the governing law of the trust?

Answer 35

yes

Question 36

An incomplete gift for federal gift tax purposes occurs if the owner-settlor reserves what 2 things?

Answer 36

1. A power to change the beneficial enjoyment; or

2. Administrative or managerial powers over the trust.

Question 37

What is IRD?

Answer 37

amounts of “gross income” of which a decedent was entitled but was not included in his taxable income in the year of death.